America appoints a Magister Populi to deal with the financial crisis

Summary:  as our ruling elites use the financial crisis to gather economic and political power, the next step is the granting of extraordinary powers to our Executives.  Following historical precedent, these will follow the usual forms while greatly changing the substance.

Welcome, Instapundit readers!  Please share your comments by posting below.  Please read the post first — als they should be brief (250 words max), civil, and relevant to this specific post.   At the end are links to other posts in this series, esp this one describing the overall cycle.


  1. A historical precedent
  2. Hot excerpts from the Paulson proposal
  3. Can Congress except Executive actions from Court review?
  4. Some experts explain if this is legal

1.  Historical Precedent

America’s original Founders borrowed extensively from practices of the Roman Republic.  So do today’s Founders of the new American regime when expanding the government’s power.  From Wikipedia (slightly edited):

Dictator was a political office of the Roman Republic.  Appointed in a time of crisis, the dictator was above the three branches of government in the constitution of the Roman Republic, as no other body or officer could check his power.

A legal innovation of the Roman Republic, the dictator (Latin for “one who dictates orders”) — officially known as the Magister Populi (”Master of the People”) and the Praetor Maximus (”The supreme Praetor“) — was an extraordinary magistrate whose function was to perform tasks exceeding the authority of any of the ordinary magistrates.

The Roman Senate passed a senatus consultum authorizing the consuls to nominate a dictator, who was the sole exception to the Roman legal principles of collegiality (multiple tenants of the same office) and responsibility (being legally able to be held to answer for actions in office); there could never be more than one dictator at any one time for any reason, and no dictator could ever be held legally responsible for any action during his time in office for any reason.

The reasons which led to the appointment of a dictator required that there should be only one at a time and great power was visited upon them — the imperium magnus, having the ultimate imperium maius(a higher degree of imperium), which was the ability to overrule or remove from office the other curule magistrates upon whom imperium was conferred, including the ability to order their death. The dictators that were appointed for carrying on the business of the state were said to be nominated rei gerundae causa (for the matter to be done),  for the “putting down of rebellion”, or ironically in the case of Sulla, as ”Dictator for the making of laws and for the settling of the constitution”.

Of course Secretary of the Treasury Paulson will not become a dictator.  The term has little utility, weighted down by a millenium of baggage.  Nor does history repeat; it just rhymes.  Still, the discretionary scope of power and freedom from judicial review to be granted Paulson are without precedent in American history, even in wartime.

2.  The Paulson proposal

Go here to see the full text of the legislative proposal from Treasury Department for authority to buy mortgage-related assets.  Here are a few of the choice items.  Section 8 is my favorite.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.-The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.-The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

3.  Can Congress except Executive actions from Court review?

Section 8 is an essential and necessary requirement for the role of Magister Populi.  To make it legal I believe (having no training in the law) that this clause invokes Article III, Section 2 of The Constitution:

In all Cases affecting Ambassadors, other public Ministers and Consuls, and those in which a State shall be Party, the supreme Court shall have original Jurisdiction. In all the other Cases before mentioned, the supreme Court shall have appellate Jurisdiction, both as to Law and Fact, with such Exceptions, and under such Regulations as the Congress shall make.

4.  Update:  legal analysis

While presumably accurate, these legals experts are telling us that the Constitutional regime is comatose if not yet terminal.  Their analysis reads like a follow-up chapter to my 4 July 2006 post “Forecast: Death of the American Constitution.”  Esp disturbing are references to Nazi philosopher Carl Schmitt (again reminding us that in many ways Hitler was just early).

(a)  “The Bailout Statute“, by David Zaring, posted at the Conglomerate, 20 September 2008 — Excerpt:

Congress bailed out S&Ls before, and survived constitutional challenge then, I can’t see why it wouldn’t be able to bail out other financial institutions now. So: can it do this? Yes. However:

*  Has Treasury been delegated an unconstitutionally broad amount of power?

These powers are broad, and because of a weird clause in the preamble of the statute, not the only things Treasury can do: “The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation” sales, appointments, regulations, etc. It’s that “without limitation” language – suggesting that the powers granted to Treasury are examples, rather than limited authorizations, that might give a nondelegation afficianado a little pause. You know, can Treasury take this new sovereign wealth fund and buy anything it likes? Isn’t that unconstitutionally broad? Maybe so …. but your first presumption is that broad grants of power haven’t been held to be unconstitutionally broad since 1935. I think this easily passes muster.

*  And there’s no judicial review.

Courts don’t like these clauses – but particularly in civil or constitutional rights cases (see the Supreme Court and GITMO). And for constitutional questions like non-delegation or commerce clause violations, they’d probably just ignore this clause. But otherwise, for run-of-the-mill review of how Treasury implements this scheme, I can’t see there being a problem keeping the courts out. Heck, judges probably want to be cut out of the supervision of Treasury’s supervision of the economy.

(b)  A stream of excellent analysis at The Volokh Conspiracy.  Esp note how these bailouts are crafted so that they pretend to conform to existing law.

(c)  “A further Schmittian (and constitutional?) moment“, Sandy Levinson, posted at Balkinization, 19 September 2008 – Excerpt:

This is exactly what Carl Schmitt met by an “exceptional” situation that requires legal transgression and perhaps even “dictatorship.” Recall, incidentally, that “Sovereign is he who decides the existence of a state of exception.” Well, it’s easy enough to identify the “sovereign(s)” this past week: Ben Bernanke and Henry Paulson.

(d)  Who is this NAZI guy?   See “Our Schmittian Administrative Law“, Adrian Vermeule (Harvard Law School), Harvard Law Review, 2009 — Abstract:

Our administrative law contains, built right into its structure, a series of legal black holes and grey holes – domains in which statutes, judicial decisions and institutional practice either explicitly or implicitly exempt the executive from legal constraints. Legal black holes and grey holes are best understood by drawing upon the thought of Carl Schmitt, in particular his account of the relationship between legality and emergencies. In this sense, American administrative law is Schmittian. Moreover, it is inevitably so. Extending legality to eliminate these black and grey holes is impracticable; any aspiration to eliminate the Schmittian elements of our administrative law is utopian.

I think it is time to get angry.

Please share your comments by posting below.  Please make them brief (250 words max), civil, and relevant to this post.  Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

Treasury Department documents

See this page for a current list of Treasury Department documents.

Posts about the current crisis

A few of the most important posts warning about this crisis

  1. A brief note on the US Dollar. Is this like August 1914?, 8 November 2007 — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
  2. The post-WWII geopolitical regime is dying. Chapter One, 21 November 2007 — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
  3. We have been warned. Death of the post-WWII geopolitical regime, Chapter II, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
  4. Death of the post-WWII geopolitical regime, III – death by debt, 8 January 2008 – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
  5. Geopolitical implications of the current economic downturn, 24 January 2008, – How will this recession end?  With re-balancing of the global economy, so that the US goods and services are again competitive.  No more trade deficit, and we can pay out debts.
  6. A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
  7. What will America look like after this recession?, 18 March 208  — The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
  8. The most important story in this week’s newspapers , 22 May 2008 — How solvent is the US government? They report the facts to us every year.
  9. The World’s biggest mess, 22 August 2008 — A brillant ex pat looks at America from across the ocean.

To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.

Originally published at Fabius Maximus blog and reproduced here with the author’s permission.

2 Responses to "America appoints a Magister Populi to deal with the financial crisis"

  1. Chris   September 21, 2008 at 5:49 pm

    I have been watching with dismay, over the last several years, the developments in USA economy and her financial system. The financial and banking elite led by the Wall Street created an enormous credit bubble which eventually encompassed the whole world. These people were selling worthless paper all over the world extracting huge, hundreds of billions of dollars worth of fees in the process. Now when the whole Ponzi scheme was exposed and the paper that the Wall Street sold turned out to be nothing but the worthless toxic waste, the resulting trillion dollar loses are being dumped onto the innocent US taxpayer.This is socialization of loses and privatization of profits at its worst. When will the looting of the taxpayer end? This is the greatest transfer of wealth from the Main Street to the Walls Street in US history and it MUST be stopped. Giving absolute power and mandate to deal with the crisis to Mr. Paulson, unelected official, the man who while working at Goldman Sachs, was the chief architect of the Wall Street generated Ponzi scheme that is underming the world financial system is beyond comprehension. To add salt to injury, the people who looted the entire world are not only allowed to keep the spoils of their crime, but are also rewarded with the job of running the new program. How many more trillions of dollars are they going to steal from the taxpayer? By voting for this heinous bill you give Wall Street green light to embark on the next round of looting, and another one, ad infinitum. This is an ultimate moral hazard. Where will it stop? When US Treasury is completely bankrupt? NO BAIL OUT FOR GAMBLERS AND FRAUDSTERS. By voting for this legislation you will mortgage not only future of your children, but the children of their children. Although I can?t participate in November 4th elections I can vote with my valet. I will, if this bill is adopted, lose confidence in your legislative, governmental and financial systems, and I will liquidate all my holdings of US treasuries and convert the proceeds into Canadian dollars. I AM AFRAID TO HOLD YOUR CURRENCY AND I REFUSE TO FINANCE THE MOTHER OF ALL FRAUDS.I pray to God that you will fulfill your duty to the American people and vote against this bill. GOD BLESS AMERICA.

  2. London Banker   September 22, 2008 at 7:31 am

    I’ve been puzzling why Paulson would propose legislation which is so obviously dictatorial, extra-legal and dangerous, even with the careful orchestration of the Lehman Brothers/Reichstag Fire.I think I’ve just figured out why they are doing it.All the Fed’s alphabet soup of emergency liquidity facilities innovated over the past year were structured around repurchase agreements. Toxic waste securities were used as collateral for US Treasuries and dollar credit at 85 percent of face value. But as each facility expires, it has to be rolled over and increased to keep pace with the implosion of credit in the interbank markets. Well over half the balance sheet assets of the Fed have been loaned out in this way, perhaps a critical amount in excess of this estimate. Without recapitalisation, the Fed is at risk of failure in the midst of this crisis. It’s Enron-style accounting for the toxic waste collateral makes it very vulnerable to a default by any of the repo counterparties it oversees as it would be forced to realise a loss and limits its ability to enforce any constraints as well.The Paulson plan will provide a one off opportunity for banks to take their toxic collateral back and sell it at a Paulson-determined price for cash. He issues Treasuries to finance the plan which increases the supply available. He selectively decides winners and losers, of course in making the scheme available and pricing assets, creating arbitrage opportunities and survivor bias in the process.In the meanwhile, the removal of the toxic waste from the Fed balance sheet and redeposit of sound Treasuries and cash as the repos unwind gets the Fed off the hook for having hypothecated most of its assets against impaired collateral at Enron-style false valuations.If I’m right, the Paulson Plan recapitalises the Fed without ever publicly admitting that it was dangerously overextended. This could be why Dems are lining up tamely behind it despite its obvious flaws if this is the gun being held to their head.